We put together these Frequently Asked Questions about the CTA to answer some of the questions readers have sent.
So keep sending us your questions so we can add to this list!
Frequently Asked Questions About the CTA
1. What is the citation for the Corporate Transparency Act of 2020 (the "CTA")?
The CTA is Title LXIV of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, Public Law 116-283 (January 1, 2021) (the "NDAA"). Division F of the NDAA is the Anti-Money Laundering Act of 2020, which includes the CTA.
Section 6403 of the CTA, among other things, amends the Bank Secrecy Act (BSA) by adding a new Section 5336, Beneficial Ownership Information Reporting Requirements, to Subchapter II of Chapter 53 of Title 31, United States Code.
2. Where are the implementing regulations for the CTA?
The regulations are not yet effective. But, the December 7, 2021 Notice of Proposed Rulemaking (and the proposed regulations) are available here
Frequently Asked Questions About Company Types
3. Does the CTA apply to all companies?
The CTA applies to any company formed in the United States by the filing of a document with the Secretary of State (or any similar official) of any state or Tribal Government.
Also, the CTA applies to any company formed outside the United States and registered to do business in the United States by the filing of a document with the Secretary of State (or any similar official) of any state or Tribal Government.
However, the CTA exempts some companies from its reporting requirement.
Frequently Asked Questions About CTA Exemptions
4. What companies are exempt from the CTA's reporting requirement?
Subsection (c)(2) of the CTA regulations exempts 23 types of companies that are already subject to some form of regulation that identifies their beneficial owners:
- SEC reporting issuer. (Defined as an entity that files financial reports with the SEC under Section 12 or Section 15(d) of the Securities and Exchange Act of 1934.)
- Governmental authority (U.S. federal, state and tribal governmental authorities)
- Credit unions
- Money transmitting businesses licensed by FinCEN
- Any "investment company" or licensed "investment advisor"
- State-licensed insurance producers
- Public accounting firms
- Public utilities
- Any tax-exempt entity (including any charity that is exempt from income tax under IRC Section 501(a) and other listed types of tax-exempt entities)
- A "large operating company" defined as an entity that (1) has more than 20 full time employees in the U.S., (2) has an "operating presence at a physical office" in the U.S., and (3) had more than $5,000,000 in gross revenues as reported on a federal income tax return for the previous year
- Any entity of which the ownership interests of such entity are controlled or wholly owned, directly or indirectly, by one or more entities described in paragraph (c)(2)(i), (ii), (iii), (iv), (v), (vii), (viii), (ix), (x), (xi), (xii), (xiii), (xiv), (xv), (xvi), (xvii), (xix), or (xxi) of this section.
** This is not a complete list. Refer to subsection (c)(2) of the regulation for a complete list and for important definitions of the terms used. **
Frequently Asked Questions About the Charitable Entity Exemption
5. What is the charitable entity exemption?
Charitable entities described in section 501(c) of the Internal Revenue Code of 1986 (Code) (determined without regard to section 508(a) of the Code) and exempt from tax under section 501(a) of the Code.
However, any such organization that ceases to be described in section 501(c) and exempt from tax under section 501(a), such organization shall be considered to be continued to be described in this paragraph (c)(2)(xix)(A) for the 180-day period beginning on the date of the loss of such tax-exempt status.
Frequently Asked Questions About Beneficial Ownership Reports
6. What must a reporting company's beneficial ownership report include?
The beneficial ownership report must include five specified items of information for each beneficial owner and each company applicant: (a) full legal name, (b) date of birth, (c) residential address (except that a company applicant who is in the business of forming companies may provide a business address), (d) a "unique identifying number" (from a specified list of documents, including an unexpired U.S. drivers license or an unexpired U.S. passport), and (e) an image file of the document that provides the unique identifying number.
For non-U.S. persons, the "unique identifying number" may be a non-U.S. drivers license, passport, or national identity card.
Frequently Asked Questions about Definition of Beneficial Owner
7. Who is a beneficial owner?
A beneficial owner is a natural person who owns 25% or more of the equity interest in the reporting company.
In addition, any person who has substantial control over the reporting company is defined as a beneficial owner.
Frequently Asked Questions About Substantial Control
8. What is the definition of "substantial control"?
The draft regulation defines "substantial control" as including:
(i) "Service as a senior officer
of the reporting company;
(ii) Authority over the appointment or removal of any senior officer or a majority or dominant minority of the board of directors (or similar body);
(iii)Direction, determination, or decision of, or substantial influence over, important matters affecting the reporting company
, including but not limited to:
(A) The nature, scope, and attributes of the business of the reporting company, including the sale, lease, mortgage, or other transfer of any principal assets of the reporting company;
(B) The reorganization, dissolution, or merger of the reporting company;
(C) Major expenditures or investments, issuances of any equity, incurrence of any significant debt, or approval of the operating budget of the reporting company;
(D) The selection or termination of business lines or ventures, or geographic focus, of the reporting company;
(E) Compensation schemes and incentive programs for senior officers;
(F) The entry into or termination, or the fulfillment or non-fulfillment of significant contracts; and Amendments of any substantial governance documents of the reporting company, including the articles of incorporation or similar formation documents, bylaws, and significant policies or procedures; and
(iv)Any other form of substantial control
over the reporting company."
Frequently Asked Questions About Exempt Persons
9. Does the CTA exempt any types of person from the beneficial ownership reporting obligation?
The following persons do not
need to be included in a reporting company's beneficial ownership report:
- A minor child, as defined in the state in which the entity is formed, if the information of the parent or guardian of the minor child is reported in accordance with this section;
- An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual;
- An individual acting solely as an employee of a corporation, limited liability company, or other similar entity and whose control over or economic benefits from such entity is derived solely from the employment status of the person;
- A person whose only interest in a corporation, limited liability company, or other similar entity is through a right of inheritance; or
- A creditor of a corporation, limited liability company, or other similar entity, unless the creditor meets the requirements of . . . . subparagraph (A).
Frequently Asked Questions about Company Applicant
10. Who is the "company applicant"?
The "company applicant" of a domestic company is the individual "who files the document that creates the domestic reporting company."
However, for a foreign reporting company, it is the "individual who files the document that first registers" the company.
In addition, for both cases, "any individual who directs or controls the filing of such document by another person" is also a "company applicant."
For example, the "company applicant" of a corporation is usually the attorney who signed the articles of incorporation as "incorporator."
However, for an LLC, the "company applicant" is the person who signed the articles of organization as the "organizer."
11. How should a reporting company address a deceased company applicant?
"If a reporting company was created or registered before [effective date of the final rule], and any company applicant died before [one year after effective date of the final rule], the report shall include that fact, as well as any information required under paragraph (b)(1) of this section of which the reporting company has actual knowledge with respect to such company applicant."
Last updated January 28, 2022.